3 weeks ago
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According to specialist insurance-linked securities (ILS) fund manager Twelve Capital, while the 2024 Atlantic hurricane season will result in insurance industry losses of between $30 billion and $50 billion, only muted impacts are expected for reinsurance and catastrophe bonds.
Reviewing the 2024 Atlantic hurricane season, Twelve Capital explains that despite the major hurricane landfalls in the United States, more insured losses are expected from secondary perils such as wildfires, tornadoes, and floods.
However, given the largely peak peril focus of catastrophe bonds, impacts from the over $50 billion of global secondary peril losses are not expected to trouble that market.
The ILS investment manager commented, “The 2024 Atlantic Hurricane season was more active than average but less severe than early predictions. Warm sea surface temperatures and the transition away from El Niño fuelled strong storm activity, producing 11 hurricanes, with 5 reaching Category 3 or higher. However, factors like Saharan dust helped limit storm development.
“Insurance losses from hurricanes are estimated at USD 30–50 billion, but most insured natural catastrophe losses in 2024, exceeding USD 50 billion, will arise from secondary perils such as wildfires, tornadoes, and floods. Twelve Capital continues to focus on peak peril risks.”
Discussing how the catastrophe bond market has fared in 2024, Twelve Capital said, “Year to date, 2024 has seen minimal losses in the Cat Bond market. The high level of severe convective storm activity resulted in aggregate erosion for a number of Cat Bonds, leaving them more exposed during the hurricane season.
“Given the current level of industry losses from the major events affecting the US, the current level of losses in the Cat Bond market is likely to be minimal.”
Moving on to say, “While the conditions were ripe for a very active hurricane season, we have again seen that catastrophe losses are ultimately a stochastic process and nothing is a given.
“There were a number of strong hurricanes that made landfall, but as they did not directly hit major metropolitan areas, the impact on the reinsurance and Cat Bond markets is likely to be muted.
“While hurricanes have been the focus of our attention, it is important to remember that secondary perils remain very active with another year of heavy tornado and hail losses, in what may be a “new normal” for this peril.
“Looking ahead to 2025, very early indications seem to point to neutral or possibly El Niño conditions at the peak of the season, but it remains to be seen how warm Atlantic waters will remain.”
It’s important to note that the insurance-linked securities (ILS) market, through private collateralized arrangements and quota shares, as well as traditional reinsurers, have paid their share of hurricane losses this year, but at levels that have been very manageable for the sector.
With catastrophe bonds largely sitting at higher-levels in reinsurance and retrocession towers, they have been largely immune as they again show that for a major cat bond market response, industry losses from a single catastrophe event typically need to be at $50 billion or higher.
English (US) ·